In perhaps its most optimistic outlook since the recession began, Target Corp. hiked its quarterly dividend to 25 cents a share, up from 17 cents.
"Target's cash generation is well above the amount needed for optimal reinvestment in our core business," Target CEO Gregg Steinhafel said in a statement.
Target is the latest U.S. company to announce plans to return cash to shareholders via stock buybacks or increased dividends -- indications that companies see profits ahead. In late May, Minnetonka-based UnitedHealth Group Inc. sharply increased its dividend. It increased its annual dividend to 50 cents a share from 3 cents.
Target's increase is a rare sign from the retailer that its worst days behind it after it struggled at times during the recession. Typically, it offers a more muted outlook of consumer spending, including one from Steinhafel hours after the dividend announcement.
Shoppers are "feeling optimistic enough to begin to indulge in small ways," he told attendees of the company's annual meeting in Colorado Wednesday. But Target is "taking nothing for granted in this uncertain economic recovery." His comments mirror other recent ones where he warned of volatility going forward.
Still, the Minneapolis-based retailer saw first-quarter profits surge 29 percent as shoppers began to loosen the purse strings a bit. Target's same-store sales jumped 2.8 percent in the quarter -- the biggest growth in 10 quarters -- although they slowed again to a more tepid 1.3 percent increase for May.
But Target has been spending less cash on some of its big-ticket items, namely new store development, which has slowed to a near crawl. Target is opening just 13 new stores this year, including its first one in Manhattan. And it faces pressure from rival Wal-Mart Stores Inc., which is trying to climb out of its slump with more price cuts.
Target has been buying up its stock under a $10 billion share repurchase program that it resumed in January. As of the end of March it had bought back 111 million shares for $5.7 billion. Last week, Wal-Mart announced a new $15 billion share repurchase plan.
